Rental of a room by a non-profit organisation: when the complexity of VAT legislation is an asset
Rental of a room by a non-profit organisation: when the complexity of VAT legislation is an asset
August 2022 – Many associations generate additional income by renting out their premises to other associations or individuals. They usually do this without VAT, but according to the Court of Cassation this is not always correct and associations should sometimes charge VAT, with all the administrative consequences that this implies.
The facts
A non-profit organisation owns a former church centre. After converting the centre, the NPO rents the building to its members, individuals and companies for events. The tenant can use the room and the kitchen equipment (tables, chairs, cutlery, etc.) as well as the sanitary facilities. They must buy drinks from the ASBL. The use of the room and facilities and the drinks consumed are invoiced to the users with VAT. The building is then cleaned by people from the ASBL. The NPO intends to deduct the VAT on the conversion and fitting out of the hall.
However, the VAT administration refuses the deduction because the ASBL mainly rents out real estate, which is in principle a VAT-exempt activity, so that no VAT deduction is possible.
On the other hand, the administration accepts that the ASBL is subject to VAT on the sale of drinks, but this only means that the VAT on the purchase of the drinks is deductible.
The NPO considers that it is fully liable for VAT because the rental of a room with the supply of drinks and equipment for the use of the room is a complex service for which it is liable for VAT.
Cassation
The ASBL won the case both at first instance and on appeal.
On 29 January 2021, the Court of Cassation also confirmed that all the services provided by the ASBL must be considered as a single service within the meaning of Article 18, §1, paragraph 2, 11° of the VAT Code. The tax authorities cannot separate the different services - the rental of the room with accessories on the one hand and the sale of drinks on the other - and then conclude that one service is subject to VAT and the other is not. Everything must be examined together.
A poisoned gift ?
In itself, the ruling seems to be good news: the NPO can deduct all VAT paid on the investment.
But most associations have no problem with the current VAT situation. They assume that they are not subject to VAT because the rental of a room is a passive rental, although they provide some related services, such as the provision of tables and chairs, cleaning, the supply of drinks...
Does an association become liable for VAT because it charges for the purchase of drinks at the same time as the hire of the hall?
The Minister is reassuring
Since 1 January 2019, the letting of real estate for a period of more than six months is in principle always taxed. The purely passive provision of a room to associations and individuals who use the room only for a short period of time is only exempt from VAT if this provision is made:
either to natural persons who use the room for private purposes or, more generally, for purposes other than for their economic activity;
or to non-profit organisations;
or to any person who uses the goods for operations exempted under Article 44, § 2 of the VAT Code (education, sport, culture, etc.).
The provision of tables and chairs when hiring a room (or any other goods forming part of the basic equipment of the room) is considered to be an incidental transaction to the hiring and is therefore also exempt from VAT.
If other services are supplied in connection with the hiring of the room which cannot be regarded as ancillary transactions, there is a multiple transaction. In this case, it must be inferred from the facts whether the services consist of two or more separate supplies or whether it is a single supply. The principle is that each transaction must be considered separate and independent.
A single service is only involved when:
two or more elements or acts supplied by the taxable person are so closely linked that they objectively form a single inseparable economic service, the breakdown of which would be artificial; or
where one or more elements are deemed to constitute the main supply, while one or more other elements are deemed to constitute one or more ancillary supplies which share the tax treatment of the main supply.
A service is ancillary to a main service when it is not an end in itself but a means for the consumer to benefit from the supplier's main service under the best possible conditions. This is the case, for example, of the provision of tables and chairs when hiring a room. However, the Minister considers that it is also necessary to examine on a case-by-case basis what purpose the consumer had in purchasing the services in order to be able to determine whether the provision of the service is or is not merely a component of a complex service which must be considered as an indivisible whole.
In doing so, the Minister confirms the view of the Court of Cassation without attaching the consequences that some associations attach to it. In the case brought before the Court of Cassation, the ASBL had an interest in being considered as a taxable person for VAT purposes.
But if this is not the case, neither the tax authorities nor the association has any interest in the association becoming a taxable person, and nothing changes.